DOF to withdraw regulation imposing 12% VAT on exporter inputs

Philippine News Agency

July 21, 2021

MANILA – The Department of Finance (DOF) and Bureau of Internal Revenue (BIR) have agreed to suspend the implementation of Revenue Regulation (RR) 9-2021, which imposed 12-percent value-added tax (VAT) on certain exporter transactions that were previously taxed at 0 percent, a House leader announced.

The suspension of the BIR regulation comes after a briefing facilitated by the House Ways and Means Committee on Wednesday with concerned government agencies and stakeholders.

Albay Representative Joey Salceda, committee chair, expressed gratitude to Finance Secretary Carlos Dominguez III for this decision as it will help the country's export industry "get the breather it needs" to recover.

“The DOF and the BIR held talks with me over the weekend. We were supposed to have a hearing on Monday, but we deferred the briefing to Wednesday out of deference to the Secretary, whose decision was to suspend the regulation first pending corrective legislation,” Salceda said.

RR No. 9-2021 was issued pursuant to the provisions of Republic Act (RA) No. 10963 or the Tax Reform and Acceleration and Inclusion Act (TRAIN), which provide that certain transactions previously considered zero-rated shall be subject to 12 percent VAT.

This upon satisfaction of two conditions: the successful establishment and implementation of an enhanced VAT refund system, and that all pending VAT refund claims as of Dec. 31, 2017 shall be fully paid in cash by Dec. 31, 2019.

With the decision to suspend, the following transactions will revert to their zero-rated status:

Sale of raw materials or packaging materials to a non-resident buyer for delivery to a local export-oriented enterprise;

Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70 percent of total annual production;

Those considered export sales under Executive Order (EO) No. 226, or the Omnibus Investment Code of 1987, and other special laws (Section 106 (A) (2) (a) (5) of the Tax Code, as amended);

Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported; and

Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70 percent of total annual production.

Salceda said the DOF will implement the provision of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law, which allows exporters to enjoy VAT zero rating on local purchases of goods and services directly and exclusively used in its registered project or activity.

“CREATE hopes to ease the operations of exporters, enhance the country’s competitiveness, and encourage sourcing of materials from local suppliers. That’s the spirit of the legislation. That’s why it insists on the zero-rating for local inputs, on top of enhanced deductions for them," he said.

Salceda also said he will continue to work with BIR and DOF to write “corrective legislation” to address small exporter concerns on the refund system and on audits.

“The DOF says one issue with the audit system, that forces them to audit everyone who seeks a refund, is that the Commission on Audit is also very strict with the refund system. So, my proposal is to relax the rules a bit for small de minimis claims, since it’s really not worth the time of tax administration,” he added.

Salceda said the practice of risk-based auditing is already the norm in most advanced tax jurisdictions.

"You go to Japan or Singapore to purchase some goods as a tourist, and at the airport, you can get your VAT refund over the counter. Ideally, that’s a system you want here as well,” Salceda said. “The DOF seems intent on modernizing our tax administration and closing down loopholes."

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